FEDERAL COURT OF AUSTRALIA Western Bulk Carriers (Australia) Pty Ltd v Cosco Bulk Carrier Co Ltd [2002] FCA 1520 ADMIRALTY – PRACTICE & PROCEDURE – application for preliminary discovery under O 15A Federal Court Rules – where reasonable cause to believe that cranes on vessel not fit for purpose – where potential claim for recovery of economic loss – application for access to vessel to inspect cranes and related documentation PRACTICE & PROCEDURE – motion to set aside service outside jurisdiction – where alleged that no prima facie case Admiralty Act 1988 (Cth) s 4(3)(d)(i) Judiciary Act 1903 (Cth) s 39B(1)(A) Federal Court Rules O 15A Caltex Oil (Australia) Pty Limited v The Dredge "Willemstad" (1977) 136 CLR 529 cited Hooper v Kirella Pty Limited (1999) 96 FCR 1 cited Perre v Arpand Pty Limited (1999) 198 CLR 180 cited SmithKline Beecham plc v Alphapharm Pty Limited [2001] FCA 271 cited M. Walford et al Time Charters 4th ed (1995) WESTERN BULK CARRIERS (AUSTRALIA) PTY LIMITED AND WESTERN BULK CARRIERS KS V COSCO BULK CARRIER CO LIMITED N 1264 OF 2002 BEAUMONT J 29 NOVEMBER 2002 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1264 OF 2002 BETWEEN: WESTERN BULK CARRIERS (AUSTRALIA) PTY LIMITED FIRST PLAINTIFF WESTERN BULK CARRIERS KS SECOND PLAINTIFF AND: COSCO BULK CARRIER CO LIMITED DEFENDANT JUDGE: BEAUMONT J DATE OF ORDER: 29 NOVEMBER 2002 WHERE MADE: SYDNEY ORDeRS Noting that the plaintiffs undertake to the Court that they will use any documents obtained under these orders for the purposes only of proceedings in this Court of the kind mentioned in O 15A r 6(a), THE COURT ORDERS THAT: 1. The defendant permit the plaintiffs by their surveyor and solicitor to attend on board the MV "Tai An Hai" at Port Kembla and to inspect, test, take photographs and video tape footage of the vessel's cranes together with their motors and also to obtain photocopying access to the following records in respect of the vessel's cranes: a) Crane operation manual, b) Crane maintenance manual, c) Manufacturer's crane specifications, d) Maintenance record, running hours, e) Spare parts ordered during the last five years and on hand, f) Classification society records (where applicable to cranes), g) Crane manufacturer's inspection reports, h) Repair and inspection reports from other parties, i) Notices of protest during the past five years recording crane "down time", j) Other documents incidental or relevant to the above. 2. The defendant preserve at an office or location within the State of New South Wales, a copy of the following records presently on the vessel and/or removed on or after 13 November 2002 to date, in respect of the vessel's cranes: a) Crane operation manual, b) Crane maintenance manual, c) Manufacturer's crane specifications, d) Maintenance record, running hours, e) Spare parts ordered during the last five years and on hand, f) Classification society records (where applicable to cranes), g) Crane manufacturer's inspection reports, h) Repair and inspection reports from other parties, i) Notices of protest during the past five years recording crane "down time", j) Other documents incidental or relevant to the above. 3. The defendant to pay 80 percent of the plaintiffs' costs of the application and notice of motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1264 OF 2002 BETWEEN: WESTERN BULK CARRIERS (AUSTRALIA) PTY LIMITED FIRST PLAINTIFF WESTERN BULK CARRIERS KS SECOND PLAINTIFF AND: COSCO BULK CARRIER CO LIMITED DEFENDANT JUDGE: BEAUMONT J DATE: 29 NOVEMBER 2002 PLACE: SYDNEY REASONS FOR JUDGMENT Beaumont j: 1 This is an application under O 15A of the Federal Court Rules seeking discovery from a prospective respondent and, specifically, seeking an order that the defendant permit the plaintiffs, by their surveyor and solicitors, to inspect motor vessel "Tai An Hai", presently berthed at Port Kembla, and to take photographs and video tape footage of the vessel's cranes together with their motors; and also to obtain photocopy access to certain records in that connection; alternative relief is also sought, pursuant to the amended application dated 28 November 2002. 2 The matter has come forward at some expedition because the vessel in question is scheduled to leave Australian waters tomorrow. In order to obtain an order of the discretionary kind contemplated by O 15A, the applicant must show the existence of three essential ingredients: 3 First, that there is reasonable cause to believe that the applicant has, or may have, the right to obtain relief in the Court from a person whose description has been ascertained (see O 15A r 6(a)). On behalf of the defendant, it is submitted that this condition precedent has not been satisfied in the present case. In essence, for the reason that, there being no privity of contract between either of the plaintiffs and the defendant, no claim is available in tort for pure economic loss. In this connection, reliance is placed by the defendant upon the reasoning in Perre v Arpand Pty Limited (1999) 198 CLR 180. 4 The nature of the claim in tort, foreshadowed by the plaintiffs as a claim brought under s 4(3)(d)(i) of the Admiralty Act 1988 (Cth) ("the Act"), has been outlined in a document entitled "Draft Proposed Statement of Claim" prepared this morning being "MFI 1" as follows: "1. The Defendant at all material times held itself out to a class of persons, namely potential charterers and subcharters of vessels (which class included the Plaintiffs) as making vessels (including the MV Tai An Hai) available for charter and subcharter. 2. The Defendant knew, or a reasonable person in the position of the Defendant ought to have know, that upon navigating the MV Tai An Hai into an Australian port its cranes would be put into service in loading and/or unloading operations the unsafe and inefficient conduct of which would be likely to occasion delay, loss and damage to persons including the Plaintiffs. 3. In November 2002 the MV Tai An Hai berthed at Port Kembla and loading operations using its cranes were commenced on behalf of the Plaintiffs. 4. Owing to the inadequancy and/or malfunction of the cranes the stevedores in charge of the loading refused to continue loading with the cranes. 5. The Defendant knew or ought to have know of the features of the operation of the cranes which led to the refusal of the stevedores to use them. 6. By reason of the matters pleaded above the Plaintiffs have suffered loss and damage. 7. The Plaintiffs' loss and damage were occasioned by reason of the negligence of the Defendant. PARTICULARS OF NEGLIGENCE (i) failing to ensure that the jibs of the cranes could be stopped in the neutral position; (ii) providing a vessel with cranes the jibs of which swung freely from side to side without the capacity to stop them in the neutral position[;] (iii) [f]ailing to ensure that the vessel was equipped with cranes that were capable of lowering cargo onto dunnage or positions of stowage slowly, smoothly and safely[;] (iv) [p]roviding cranes on the vessel which dropped the cargo too quickly over the last part of the downward travel thus creating risks of: (a) damage to the cargo vessel and dunnage (b) personal injury to persons nearby. (v) failing to provide cranes with adequate and/or properly maintained braking systems." 5 In support of their claim that this precondition is satisfied here, the plaintiffs rely, in particular, upon a report in evidence prepared by Norman Sadd, Marine Surveyor, dated 16 November 2002, which is part of Exhibit A in the proceedings. 6 Mr Sadd's report, of four pages, is too long to attempt to summarise here, but a number of its features may be mentioned. Mr Sadd records that, at the request of a stevedoring company, Toll Stevedoring, he attended on board the subject vessel on 14 November 2002, and subsequently, in order to report on "difficulties being experienced with the ship's cranes". In his report he says that, watching the cranes in operation, he observed that it was: "…clearly not possibl[e] to lower the slabs into position in a controlled manner; slabs were being landed on to dunnage in the ship's hold, which was being split by the impact of the landings. The drivers were trying without success to minimise this impact. The driving of the cranes was certainly difficult with no clear neutral position on slewing or hoisting." 7 Mr Sadd said that he informed the Master and the engineers that on all four cranes: "…the load could not be lowered into position at a safe speed. We also raised concerns that the slew controls were unsatisfactory with no neutral position and the control needed to be put in the opposite slew to stop the swing of the jib." 8 Mr Sadd went on to say that when fork-lifts were removed and men were required to physically position the slabs: "…the lack of control was too dangerous for the men to be placed to guide the slabs into the stow." 9 In his report, Mr Sadd subsequently mentioned that certain hand controls were found to be worn, that there was "unoperable creep speed on hoist lowering", that another unit was found to have a "major mechanical problem" and that a further unit required "major overhaul". It was further reported that a slew control was "found to be dangerous due to no neutral position being found easily. Jib is slewing by itself". (In these last respects, Mr Sadd was citing a report by a "Koncrane" representative and his supervisor.) 10 In his conclusion Mr Sadd said: "Conclusion We were in attendance during the testing of the cranes and subsequent discussions. All four cranes were being operated with difficulty and when the "Konecrane" report was available it was clear that the cranes breached Marine Orders 32 and were in need of considerable repair before they could be effectively repaired. The second opinion obtained by COSACO confirmed the findings. The stevedore then had no option other than to cease loading. No decision was necessary from the undersigned in light of such clear condemnation from 'Konecrane.' " 11 On behalf of the defendant, it is strongly submitted that the degree of "vulnerability" indicated, it is said, as an essential ingredient of a cause of action in tort for pure economic loss in Perre's Case, was not shown to be present here. 12 An application for preliminary discovery of the present kind is, of course, not an appropriate forum for a consideration of the inner or outer limits of the tort of negligence for the recovery of pure economic loss. It was, in this connection, strongly urged on behalf of the defendant, by reference to Walford on Time Charters (M. Walford et al Time Charters 4th ed (1995) at 147), that there being no privity of contract in the sense of a direct contractual relationship between the plaintiffs and the defendants, this Court should not countenance the prospect of an action in tort arising in the present circumstance. However, as Walford goes on to say at the reference cited, there can be circumstances in which a liability in tort does arise, even in the absence of a direct contractual relationship. The example given there is of the liability of an owner to a sub-charter in tort as bailee, if the owners, through their servants or agents, are in possession of the sub-charterer's cargo; in which event, however, the owners may nonetheless be entitled to rely on exceptions in other terms in the contract under which the cargo is carried. I need not explore those issues any further here. 13 In my view, there is, on the expert material, in the form of Mr Sadd's report, reasonable cause to believe that the subject cranes are not fit for their intended purpose; and the material facts pleaded in the Draft Proposed Statement of Claim, and the particulars of negligence there alleged, satisfy me that there is a claim in tort for damage, suffered in the form of the economic loss incurred by virtue of the necessity to hire shore-based cranes to perform the function of the ship's crane. Whatever may be the application of any concept of "vulnerability" in the present context, it does seem to me that the plaintiffs have managed to pass that threshold in terms of their relationship with the defendant, given, in particular, the superior position of the defendant in terms of its knowledge of the capacity of operation of the cranes on its vessel. 14 I find, therefore, that the requirements of par (a) of r 6 have been satisfied here. 15 The second pre-condition of O 15A r 6 is that, after making all reasonable inquiries, the applicant has not sufficient information to enable a decision to be made whether to commence a proceeding in the Court to obtain that relief (see r 6(b)). 16 In this connection, it is strongly urged, on behalf of the defendant, that the plaintiffs clearly have access not only to Mr Sadd's report, but also to the information required by consultants retained by the defendant itself in this connection. 17 I accept that the information thus available to the plaintiffs is certainly a material consideration to be taken into account in this connection. I further accept that the test to be applied here is an objective one, that is to say, it does not rest merely in the assertion of the plaintiffs or the plaintiffs' legal adviser. I accept also, that mention has been made in the affidavit sworn by Craig Peter Carter, solicitor for the plaintiffs, on 28 November 2002, that "any arbitration dispute arising under the terms of the sub charterparty will be between Oldendorff and WBC-KS [Western Bulk Carriers KS]". As Mr Carter there says, it was for this reason that leave was sought to amend the application so as to include Western Bulk Carriers KS as the second plaintiff. However, whether or not that dispute is arbitrated between those parties is not, I think, a material consideration for present purposes. They will be, if they are proceeded with, collateral proceedings which, although they may impact on the question of quantum of the claim presently foreshadowed in this Court, do not have the consequence that such a proceeding in this Court will not be instituted. 18 I return then to the question whether it may be said, within the meaning of par (b) of r 6, that the applicant has, or has not, "sufficient" information to enable a decision to be made whether to commence a proceeding in the Court to obtain the relief now foreshadowed. 19 It seems to me that, as a matter of principle, it would be wrong to confine a party in the position of the present plaintiffs to evidence available from experts other than their own expert, in the process of decision-making required to be made whether to commence the proceeding foreshadowed. It goes without saying that litigation of this kind would be, in the ordinary course, expensive to any party; and, indeed, it is reasonable, in my view, to assume that any such proceeding would involve substantial expense on the part of the plaintiffs. Even if they were ultimately successful in such litigation, experience in the Court indicates that parties, regrettably, incur considerable costs beyond those allowed on taxation. 20 It is true that the information provided by Mr Sadd's report, in particular, would indicate that, in that respect at least, the plaintiffs' claim appears to be a strong one. On the other hand, experience also indicates that, until any expert is cross-examined in a forensic environment, there can be no sure guide as to the ultimate effect of evidence given. That being so, it seems to me that it is reasonable for the plaintiffs to wish to retain their own experts in this connection; that is to say, in connection with the making of a decision whether or not to commence proceedings in this Court for recovery of economic loss. It seems to me that, in principle, it would be wrong to restrict the plaintiffs to an expert or experts retained by other parties whose interests may, or may not, differ from those of the plaintiffs. 21 In other words, if it were the present case that the plaintiffs had not had the opportunity to obtain or to have access to any expert material of any kind, clearly the present application would not only have been justified, but it would have been necessary in any prudent decision-making process to institute proceedings. The mere fact that the report of an expert witness or potential expert witness retained by another party is available, does not, in my opinion, detract from what I would see as the right of any litigant to obtain assurance from an expert quarter before embarking upon an expensive litigious venture. 22 I hold, therefore, that the second pre‑condition, that contained in sub-par (b) of O 15A r 6, has been satisfied in the present case. 23 The third pre-condition is that stated in par (c) of r 6, that is to say, that there was reasonable cause to believe that the person was likely to have (and I paraphrase) possession of any document and that inspection of any document would assist in making the decision. This is a reference, in the present context, to an aspect of the amended application that I have not mentioned to this point, and that is, that access is sought not only to inspect the cranes but also to inspect a number of records, including the crane operation manual and similar such documents. 24 I propose to return to this question later when considering the form of any relief I should grant and I say nothing about it for the moment, although no argument has been addressed to me at this point on behalf of the defendant in this connection. 25 The next matter that I must address is that, as I have indicated, the present order sought is discretionary in the sense that even if each of the ingredients in pars (a), (b) and (c) have been found to be satisfied, the Court nonetheless has the discretion to make or refuse the application. In this connection, the defendant relies upon the delay that has occurred since the vessel first arrived in Australian waters some weeks ago. It is certainly true that the plaintiffs have known of Mr Sadd's report for some weeks. However, this matter was instituted some days ago and it does not appear to me that any lapse of time that may have occurred since Mr Sadd's report became available, is such that I should, in my discretion, decline to make the orders sought as a matter of principle. 26 I have come to the conclusion, therefore, that I should make an order of an appropriate kind. 27 Having heard counsel further and, in particular, having noted some undertakings given by Mr King, I make orders in accordance with my earlier reasons in the terms of orders 1 and 3 on the document, which I will mark as "MFI 2" for the purposes of identification. 28 For completeness, I should refer also to a notice of motion filed on behalf of the respondent in conjunction with its filing a conditional appearance. By its notice of motion, dated 29 November 2002, the respondent seeks an order that service of the application effected on the respondent in China be set aside. By way of explanation, it should be noted that on Wednesday, in giving ex-parte directions for service of the present proceedings, I directed that service of the relevant documents be made, not only upon the Master of the vessel now, as I have said, in Port Kembla, but also upon the respondent by facsimile transmission to its office in China. 29 As indicated in the course of argument, it seems to me at least that one of several possible paragraphs of O 8 r 1, justify the grant of leave to serve outside the Commonwealth. 30 As mentioned, they include par (a), that is to say, where the proceeding is founded on a cause of action arising in the Commonwealth, that cause of action being the claim for economic loss in tort that I have described. 31 Alternatively, par (ac), that is to say, a case where the proceeding is founded on a tort committed in the Commonwealth or, alternatively again, par (ad) where the proceeding is founded on, or is for the recovery of, damage suffered wholly or partly in the Commonwealth; caused by a tortious act or omission, wherever occurring. 32 As indicated in the course of argument, in my opinion, the present application for preliminary discovery, involves a "matter" within the meaning of the Constitution, and involves accordingly, a matter arising under a law of the Commonwealth, for the purposes of the Judiciary Act 1903 (Cth) s 39B(1)(A). Specifically, as was held in Hooper v Kirella Pty Limited (1999) 96 FCR 1, an application for preliminary discovery may be seen to be a proceeding incidental to the claim for principal relief foreshadowed here. 33 I referred also, in argument, to the circumstance that the proceeding in Caltex Oil (Australia) Pty Limited v The Dredge "Willemstad" (1977) 136 CLR 529, was, in one of its aspects, a claim for pure economic loss; that is to say, a claim for economic loss that was not parasitic upon a claim for damages for physical loss. The proceedings in that matter were brought, at first instance, in the Admiralty jurisdiction of the Supreme Court of New South Wales. 34 Mr Meagher did refer in argument to the need to show that a prima facie case exists before leave to serve outside the jurisdiction is granted. In my opinion, having regard, in particular, to the expert evidence in the report of Mr Sadd, the plaintiffs have established that the vessel's cranes were not in proper working order at the material time. As I have already indicated, I am also of the view that, if a test of vulnerability is required to be met to constitute a cause of action in tort in negligence in this area, in my opinion, that test has prima facie been satisfied here. For those reasons, I did not accede to the notice of motion. I need not make a formal order dismissing it, since I have already dealt with it in the other matter arising in the principal proceedings. 35 As to costs, the plaintiffs seek their costs. On behalf of the defendant, reference is made to an order made by Finkelstein J in SmithKline Beecham plc v Alphapharm Pty Limited [2001] FCA 271, where, in an application for preliminary discovery where the respondents had offered to make discovery of certain documents, his Honour made an order in these terms: "As to the costs, I propose to order that, if an action for infringement is brought by the applicants (or any of them) against the respondents (or any of them) by 1 August 2001, the costs of this application be at the discretion of the court which hears that proceeding. If, on the other hand, no such action is brought within that period, then the applicants should pay the costs of the application for preliminary discovery. This approach is similar to that adopted by Burchett J in Cappuccio v Australia & New Zealand Banking Group Ltd [1999] FCA 1188." 36 The making of such an order may, of course, be justified by particular circumstances in a particular context. But in the present case, it seems to me that the plaintiffs have been substantially successful in their application and that the usual rule that costs should follow the event should, on the whole, apply. However, as I have mentioned, the matter came forward at great speed, and I think it is fair to make some allowance for the need for the defendant to prepare for the matter, and to assess its position on very short notice. That being so, I am of the view that whilst the plaintiffs should have their costs of the substantial argument, which occurred today, there should otherwise be no order for costs. In order to minimise any difficulty with taxation of costs, I will take a broad approach to the question of costs, and order that the defendant pay eight-tenths or 80 per cent of the plaintiffs' costs of the application, including the costs on the notice of motion. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont. Associate: Dated: 6 December 2002 Counsel for the Plaintiffs: Mr L. King SC Solicitor for the Plaintiffs: Ebsworth & Ebsworth Counsel for the Defendant: Mr A. Meagher SC Solicitor for the Defendant: Blake Dawson Waldron Date of Hearing: 29 November 2002 Date of Judgment: 29 November 2002